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SEC Reporting Interpretations Manual

Deloitte's Roadmap: Non-GAAP Financial Measures

Non-GAAP Financial Measures and Metrics

This Roadmap combines the SEC’s guidance on non-GAAP measures with Deloitte’s interpretations and examples.

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The 2020 edition combines the SEC’s guidance on non-GAAP measures with Deloitte’s interpretations and examples in a comprehensive, reader-friendly format. The 2020 edition reflects recent developments related to non-GAAP measures, including the SEC’s January 2020 interpretive release that provides guidance on the disclosure and use of key performance indicators and metrics. For a summary of key changes made to this Roadmap since publication of the September 2019 edition, see Appendix J.
As a result of the ongoing uncertainty associated with the unprecedented nature of coronavirus disease 2019 (“COVID-19”) and related economic conditions, companies may be faced with a number of financial reporting and disclosure challenges that result in the recognition of infrequent or unusual gains, charges, or losses. Registrants that are considering reflecting these items in their non-GAAP measures should be mindful of the various requirements and interpretations related to the use of non-GAAP measures. Further, the SEC advised registrants in CF Disclosure Guidance Topic 9 that “it would be appropriate to highlight why management finds the [non-GAAP] measure or metric useful and how it helps investors assess the impact of COVID-19 on the company’s financial position and results of operations.”
In May 2016, the SEC staff issued compliance and disclosure interpretations (C&DIs) that clarify the SEC’s guidance on non-GAAP measures in response to concerns about the increased use and prominence of such measures, their potential to be misleading, and the progressively larger difference between the amounts reported for non-GAAP and GAAP measures. In the years since, many registrants have heeded the SEC staff’s advice to incorporate into practice the guidance in the updated C&DIs, particularly that on undue prominence of non-GAAP measures in press releases and filings. Although the number of reviews with comments on non-GAAP measures has significantly declined since issuance of the updated C&DIs, such measures remained among the top areas of SEC comment for the 12 months ended July 31, 2020.
The SEC staff is expected to continue monitoring registrants’ use of non-GAAP measures, and registrants should remain mindful of key focus areas, including (1) whether there is undue prominence of non-GAAP measures, (2) enhancement of the disclosure related to the purpose and use of such measures, (3) clear labeling of non-GAAP measures, (4) whether the nature of certain adjustments may be potentially misleading or could represent tailored accounting, and (5) the presentation of the tax impact of non-GAAP adjustments. The SEC has also publicly spoken about the importance of registrants’ implementation of appropriate controls regarding the disclosure of such measures.